Calif. utilities up on political hopes

Court rules for Edison unit in cost recovery suit

SACRAMENTO, Calif. (CBS.MW) - Shares of California's two largest utilities rallied Monday, on hopes the state will ease their debt burdens and as a federal court ruled a suit to recover billions in wholesale electric costs can go forward.

Shares of Edison International
EIX, +0.21%
rose $1.69 to close at $12. It hit an all-time low at $6.25 on Thursday. PG&E shares
PCG, +0.12%
rose $1.38 to settle at $14. Both stocks touched their highest level in three trading sessions.

California Gov. Gray Davis, during his "State of the State" address on Monday evening, said that deregulation has been a "colossal and dangerous failure." To rectify the immediate situation, he said he will set aside $1 billion for new power generation. He also proposed legislation to overhaul the current system.

He did not, however, address the possible use of state-backed bonds to help Edison International and PG&E Corp. pay off billions of dollars in debt run up in the wholesale power markets.

Separately on Monday, a U.S. District Court judge in Los Angeles said Edison's Southern California Edison unit can proceed with a suit to force state regulators to allow it to recover the nearly $5 billion in wholesale costs beyond what it receives under the state's frozen retail rates.

In a statement, the utility applauded the decision, calling it an "important step toward rebuilding the financial stability of California's electric power system."

PG&E's Pacific Gas & Electric said it was also pleased with the ruling and noted that the California Public Utilities Commission should work together with the state's utilities to "stabilize customer rates to avoid rate shock from wholesale power costs." Its own suit, filed in San Francisco, will be heard on Jan. 30.

California State Assembly Speaker Robert Hertzberg appointed an energy committee late Monday that will hearings to "probe the financial practices among utilities and generators."

"The public deserves to know what went wrong," Hertzberg said in a statement.

Assemblymember Roderick Wright said the committee's first priority regarding the setting of electric power rates will be "price stability."

Credit issues

Edison's Southern California Edison said late Friday it will cut 1,450 jobs as part of a plan to reduce costs by $465 million. The company said part of the reduction will include $100 million in maintenance costs for its electric operations. The company had announced 400 job cuts just last month.

Also on Friday, California State Treasurer Phil Angelides unveiled a $10 billion plan for the creation of a public power authority to help stabilize the market. The power authority could build power plants, take ownership of the transmission system that now belongs to private utility companies, cut electricity consumption through conservation efforts and even force power plants to give control of their output back to the state, if necessary.

Davis may unveil a plan that could include state-issued bonds to help bail out utilities and the formation of a public-power authority, the Wall Street Journal reported Monday.

Federal moves

Top Clinton administration officials will meet in Washington Tuesday with Davis and utility and power company executives to discuss ways to ease the state's current power supply crunch and avert bankruptcy of California's two biggest utilities.

Scheduled to begin late in the day at the Treasury Department, organizers of the closed-door meeting said the mini energy summit will be a "substantive discussion," and is designed to bring all the parties together to try to resolve the problems

On Thursday California regulators approved temporary rate hikes of 7 to 15 percent for customers of SoCal Edison and Pacific Gas & Electric, but stopped well short of the 26 percent to 30 percent hikes the companies asked for. See full story.

The move prompted credit agencies to lower the bond ratings for the utilities close to junk status.

Adding to the utilities woes, on Friday a U.S. appeals court denied a request Edison to force the Federal Energy Regulatory Commission to lower the rates wholesalers such as Dynegy
DYN, -0.24%
and Calpine
C.PN, -0.08%
charge the utilities.

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